Your link did not work when I tried it. Would appreciate if you could elaborate on this nebulous part of your post.

"disruption to private profits"

Are you suggesting that the collapse of the financial system would be limited to "private profits"?

We should be glad that the U.S. government did not decide to buy Bear Stearns like Northern Rock. The fed attempts to maintain liquidity and ease interest rates will likely succeed in getting us past this crisis.

Could you tell us what other course of action the fed should have taken?

The fed attempts to maintain liquidity and ease interest rates will likely succeed in getting us past this crisis.

We have been in the crisis since last August. There have been 3 waves of contagion so far. See the TED spread for dates. Each time the teeter-tottering Fed blinks, dusts off the textbooks and invokes some desperate depression-era solution.

Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions.

Now that investment banks can borrow at 2.5% and shovel toxic waste on the Fed's balance sheet would it be okay if I collateralized the note I hold on a condemned crack house in Detroit for the same cost of borrowing? Or how about the balance owed on the old beer fridge on the front porch? I can't secure adequate credit accomodations on either.

Certainly agree that there have been tremendous disruptions and we are by no means out of the woods and we may not even be past the worst.

While it is not difficult to criticize the Fed for either not going far enough or for doing too much, could you explain what action you would have preferred.

Don't really see what other action the fed could have taken in the case of Bear Sterns where no other firms would do business with Bear, the market for mortage backed securities regardless of their safety had collapsed, and the company was on the verge of bankrupcy which could trigger a domino effect across the financial sector.

Forcing the original fire sale at $2 per share (far less than the value of the company's assets) and backing $30B of the mortgage backed securities may not have been a great play but that was the only available alternative that could be negotiated.

Ben Bernanke has the least envied job in the U.S. at present. I am most interested in what approach you would have taken. I realize that you don't like the actions of the Fed but again I ask:

1. Done nothing. There is no evidence that the world would have ended if Bear went bankrupt.

2. Nationalized Bear.

3. Given the $30 billion backstop to Bear directly; because immediately after the deal was brokered, they opened up their latest facility, the PDCF. Lehman, Goldman and Morgan Stanley (Bear competitors) have glibly brought their snouts to that trough.

4. Cut the federal funds rate intermeeting. Didn't they save the world in January with a similarly timed cut?

I would have chosen door number 1.

I have no financial interest in Bear; no ax to grind. The whole deal reeks of crony capitalism and the Fed has lost its independence and credibility in the US capital markets and beyond.

Have to agree with you on the McGyver imagery. Ben is pretty amazing. :) Eve White

Anon. 7:09,

Thank heavens, you would not pick door #2.

With regard to the crony capitalism, 1/3 of the shares of Bear Sterns are held by employees. These folks have their pensions going up in smoke. This is far from a bailout for the shareholders.

If we are comparing this crisis to 1929, your recommendation is similar to the actions of the Federal Reserve which did nothing to alleviate a liquidity crisis which it could easily have eased. Instead, the fed stood idly by and did nothing to prevent the failure of Bank of America and subsequent runs on hundred of banks across America. Milton Friedman demonstrated that it was the mishandling by the federal reserve that deepened the financial crisis resulting in the most severe financial crisis in U.S. history.

See Freedom and Capitalism by Milton Friedman, Nobel laureate in Economics. Fortunately, Mr. Bernanke's area of specialty is the Great Depression.

While you cite TED spread, does it not also occur that doing nothing would not address the decline of liquidity. How would the Nero approach of fiddling while Rome burns work to resolve this crisis?